Are small banks the answer? They seem to think so

I don’t normally link to press releases, since 99% of them are fairly worthless (sorry PR people!)

But this one is interesting. Here’s the headline:

“The World’s Leading Sustainable Banks Announce Major New Commitment”

These banks style themselves as both sustainable and crisis-resistant. I wonder how accurate this is.

Here’s the list:

Alternative Bank ABS, Switzerland, www.abs.ch
Banca Popolare Etica, Italy, www.bancaetica.com
Banex, Banco del Exito, Nicaragua, www.banex.com
BRAC Bank and BRAC Microfinance Programme, Bangladesh, www.brac.net and www.bracbank.com
GLS Bank, Germany, www.gls.de
Merkur Bank, Denmark, www.merkurbank.dk
Mibanco, Banco de la Microempresa, Peru, www.mibanco.com.pe
New Resource Bank, United States, www.newresourcebank.com
ShoreBank Corporation, United States, www.shorebankcorp.com
Triodos Bank, The Netherlands, www.triodos.com
XacBank, Mongolia, www.xacbank.com

To qualify for membership, each institution has to meet three criteria:

– Independent and licensed with a focus on retail customers
– Minimum balance sheet of $100 million
– Committed to responsible financing and the triple bottom line of people, planet and profit

Are these banks enough?

Clearly we need bigger ones too, for project and general business finance that encourages jobs on a large scale.

But given that some commentators believe that banks, like the military-industrial complex firms of the 1950s, have ‘bought’ the political process (particularly in the US), and that we don’t need super-banks, how big do we need them to be?

A question I don’t know the answer to. But one where clearly we need much more debate.

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  1. Quite right. One direction the debate could go is whether all banks – big ones too – should be subject to a structure that makes ethical considerations a mandatory part of their decision making process.
    If wholesale financial products such as collateralised debt obligations and credit default swaps had, when they were first invested, been subject to scrutiny by an ethics committee – either in the bank or by an external regulator – perhaps the financial crisis might not have been so bad.
    Imagine if new financial products had to be licensed by an ethical body that first studied the real economic and social effects of the product and its ethical implications. Such a body might have looked at CDOs containing sub-prime elements, which caused much of the balance sheet damage triggering bail-outs, and asked whether their downstream impact in fostering the growth of unhealthy sub-prime lending was ethically acceptable. It might also have challenged the ratings agencies on their whether re-packaging sub-prime debt as a AAA bond was ethically acceptable to those buying the bonds.
    Similarly, an ethical look at the recently created CDS market might have shown that its structure – where banks could sell quantities of insurance against a bond’s default many times in excess of the value of the bond itself – would create powerful incentives for speculative, volatility-enhancing trading behaviour. Such trading may be profitable but when it is obviously bad for financial stability and encourages rent-seeking behaviour by fund managers at the expense of investors, someone needs to step in and call a halt.
    As with environmental concerns, we need a mechanism to force financial decision makers to consider the unintended external consequences of their actions. An ethical element to the future regulatory structure would be a welcome step.

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